Industry News

Government-owned Oriental Bank of Commerce (OBC) has revised its earlier estimate for equity infusion from Life Insurance Corporation of India (LIC) to Rs 178 crore, after an easing of the rule for determining the amount. The initial estimate was up to Rs 500 crore. It told the BSE on Saturday that it planned to issue 21.5 million shares at Rs 82.79 each to LIC on a preferential basis. The price was fixed on the rule set by the Securities and Exchange Board of India.

Source: Business Standard

Sangita Mehta,

Investors will probably have something new to add to their portfolio soon, not a flashy startup, but ancient general insurance firms which until now have been privately held. The finance minister has proposed to list four general insurers, adding spice to a market that has been bereft of new themes and establishing a benchmark for private firms that would list later. IPOs of New India Assurance or National Insurance could breathe new life into a market which has seen issues such as Coffee Day Enterprises, Prabhat Dairy, and Quick Heal, where investors have lost money.

Source: Economic Times

State-owned Indian Overseas Bank (IOB) today said it will raise Rs. 200 crore by issuing over eight crore shares on preferential basis to LIC to meet the Basel III capital requirement.

”...to create, offer, issue and allot up to 8,62,99,771 equity shares for cash at an issue price of Rs. 23.18 per equity share aggregating up to Rs. 200,04,28,692 on preferential basis to Life Insurance Corporation of India (LIC) or its various schemes,” it said in a BSE filing.

Source: Business Line

Chirag Madia,

In order to develop a ‘pension society’ in India, finance minister Arun Jaitley in its third Budget speech announced reduction in service tax levied on annuities of insurance plans. Though insurance companies have by and large welcomed this move, they also feel that the current single annuity market is very small and will take many years to make it successful. In the Union Budget 2016-17, it was announced that, to reduce service tax on single premium annuity (Insurance) Policies from 3.5% to 1.4% of the premium paid in certain cases with effect from April 1, 2016.

Typically, single-premium annuity plans help an investor earn a regular income for the entire life. In single-premium plans, investors pay a lump sum premium, and opt for a suitable annuity option that suits their requirements – it could be monthly, quarterly or yearly. Based on the opted annuity option and selected payout frequency, investors start receiving regular annuity income.

R M Vishakha, MD and CEO at IndiaFirst Life Insurance, says: “I think it is a very positive move, as annuities are primarily purchased by the retired people on the overall savings they have accumulated. As of now, the single-premium annuities market is not very large, but after maturities of National Pension Scheme (NPS) and superannuation schemes, it will be become very big.”

only a few life insurance companies provide single-premium annuities, and typically the minimum entry age in such category is 40 years. “Despite reduction in the service tax, I don’t think single-premium annuity policies are likely to see demand because returns are very less compared to other debt products,” said senior official of leading insurance company. Currently investors earn anywhere in the range of 5-7% in single-premium annuity policies.

Not surprisingly, annuity products do not account for a high proportion of the insurance business. In FY15, a little over 17% of the total investment made by insurance companies in India was on account of annuities compared with 16% for unit-linked funds and 67% for life funds — the last two products are tax-free.

The finance minister, in his Budget speech, proposed that 40% of the withdrawals of the employees provident fund, NPS and other superannuation corpus will be exempt from tax, while investors need to buy annuities from the remaining 60%. “Reduction in service tax will give more money into the hand of investors and I think it’s a fair move to develop the annuities market in India,” says Gaurav Mashruwala, a certified financial planner (CFP).

According to the insurance players, despite single annuities market being small, state-run Life Corporation of India (LIC) is the biggest player in the segment and a reduction in service tax will help LIC to target more and more investors. LIC offers a monthly annuity of Rs 745 on a payment of Rs 1 lakh if bought at the age of 60 with no payments to be made after the subscriber’s death. In case the payment has to be extended to the spouse, this monthly annuity reduces to Rs 644.

Source: Financial Express

State-owned Vijaya Bank today said it is planning to raise Rs 226 crore from allotment of equity shares to insurance major Life Insurance Corporation of India ( LIC) on preferential basis.

Source: PTI

Written by Sandeep Singh , Anil Sasi

Around3.7 crore EPF members may be fretting over the government’s proposal to tax 60 per cent of the corpus unless it is diverted into an annuity plan, but there is conspicuous cheer from one corner — life insurance companies. They are the only ones offering annuity products and could end up as the beneficiaries of any move that potentially forces a portion of the EPF money to flow in to annuity pension schemes for tax reasons.

Inthe Budget presented on Monday, the finance minister Arun Jaitley proposed to tax 60 per cent of the EPF corpus at the time of withdrawal. As it drew criticism from several corners, the government on Tuesday clarified that the money would not attract tax if an employee contributes 60 per cent of the corpus in annuity products provided by insurance companies. Top officials at least two life insurance companies admitted that the move will provide a big impetus to the annuity business in India.

Amember of the EPFO’s Central Board of Trustees on Wednesday alluded to the government’s push towards annuity-based pension schemes being done to create a market for insurance companies. “Once the government increased the FDI limit in insurance from 26 per cent to 49 per cent, all the effort has been to increase their business. On Tuesday, by stating in their clarification that the withdrawal from EPF will not be taxed if it is invested in annuity schemes, the government is trying to create market for pension products offered by insurance companies,” DL, Sachdev, All India Trade Union Congress Secretary told The Indian Express.

The Indian insurance sector has witnessed a rebound in investor interest after the Centre hiked the FDI cap from 26 per cent to up to 49 per cent and Parliament ratified the decision in March 2015. Till December 2015, at least 10 insurance companies saw an increase in stake by their foreign partners in Indian joint venture insurance firms.

Interestingly,the move to push salaried people towards annuity products comes at a time when the global experience points to efforts by governments to diversify the option before people beyond annuity instruments. In the UK, for instance, until April 6, 2015, most people with a defined contribution pension had to buy an annuity as the pension tax legislation strongly encouraged this, applying a 55 per cent tax charge to lump sum or flexible payments other than in limited circumstances. Changes, however, were introduced in April last year, wherein the UK Government radically increased the size of the pension pot that could be taken as a lump sum and introduced more flexibility into income drawdown arrangements -- which allows an individual to draw an income from their fund while leaving the rest of it invested. In the UK, annuities have been among the biggest money-spinners for the listed life insurers and these schemes, in 2014, reportedly accounted for around a fifth of British life insurers’ revenues — and two-thirds of their “new business” profits.

Source: Financial Express